Pound Stabilises After Four-Week Low

The GBP/USD gained for the second day, trading near 1.3500 during Asian hours on Friday. The pair sustained a bullish trend, indicated by the 14-day RSI being above 50, though it remains beneath the nine-day EMA, pointing to weaker short-term momentum.

On Thursday, GBP/USD bounced above 1.3450 following a retreat near 1.3400. Market events allowed this movement, as US markets paused for a holiday, easing US dollar pressure.

The Pound stabilised after hitting a four-week low of 1.3383, with gains post Bank of England’s rate decision. Geopolitical uncertainties impacted the pair as the US Dollar continued its rise.

The BoE’s vote to maintain rates, influenced by rising oil prices and Middle East tensions, reflects a weakening UK labour market. This suggests potential further easing, keeping the financial environment under scrutiny.

Sterling’s modest recovery, triggered by the Thanksgiving lull and a relief in USD buying, does not necessarily reflect fresh optimism about underlying UK fundamentals. What we’re seeing instead is a short-term release of pressure—more a consequence of thin liquidity and diminished market participation than a renewed bullish conviction.

The Bank of England’s decision to hold rates steady wasn’t met with surprise, but what stood out was the cautious tone. The split among policymakers highlights prevailing concerns about wage dynamics and softer hiring trends, which are beginning to seep deeper into the monetary policy outlook. Interestingly, the upward movement in cable occurred despite policy inaction, underscoring how quickly sentiment can swing when market depth is thin.

Brent Draws Attention to Inflation Expectations

The RSI staying above 50 hints at ongoing demand, though the failure to break back above shorter-term averages tempers enthusiasm. This kind of dislocation typically tells us that traders maintain a slightly constructive bias, though without strong commitment—momentum is lacking. In other words, the appetite is cautious, not bold.

Brent staying elevated has drawn attention to inflation expectations again, particularly through the energy channel. While this supports rate-sensitive pricing in theory, the BoE’s hesitancy to act on it implies inflationary pressure alone may no longer be enough to justify tightening, at least not with the labour market softening. That brings rate cut discussions into more delicate focus heading into the year-end.

With the pair hovering around 1.3500, there’s now a compelling range forming between 1.3400 and 1.3550. Breaks outside of that could spark bolder positioning, but as things stand, rallies lack strong follow-through.

For those of us watching the derivatives space, this is where implied volatilities can become particularly helpful. Demand for downside protection has not ramped up sharply, suggesting that market participants are not pricing in a dramatic shift—yet. However, the lean toward GBP puts is still notable, especially for shorter-dated contracts.

In recent sessions, the yield gap between UK gilts and US Treasuries has narrowed, but without a reliable correlation re-establishing. This decoupling tells us that broad dollar sentiment remains a dominant driver, with cable more reactive to external flows than to domestic data signals. One has to remain cautious about over-emphasising BoE narratives unless they break with expectations.

The geopolitical backdrop offers another layer of complication. While oil’s impact on headline inflation cannot be dismissed, it’s becoming clear that risk appetite is increasingly reactive, not anticipatory. Moves in cable that align with spot oil shifts are short-lived, fading quickly when larger macro themes reassert.

Looking at positioning, there’s no strong evidence yet of a structural shift in sentiment. Commitment of Traders data still shows large speculative accounts holding balanced positions, trimming both longs and shorts at the margin. It suggests a broader wait-and-see approach among major players.

As we head into the final month of the year, quieter trading periods can exaggerate moves. This does not give clear direction, but rather forces more attention to gamma flows and event-driven swings. We’d anticipate ranges to hold unless a catalyst breaks sentiment; that could come via NFP, inflation reads, or any surprise in central bank commentary.

The play here may be to trade around well-defined levels, monitor shifts in implied volatility, and step back from wider macro narratives that aren’t translating into price action for now.

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